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Teardrop, Inc., wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $31 per share, but the book value per share is $7. Net income is currently $3.2 million. The new facility will cost $45 million, and it will increase net income by $900,000.
A. Assuming a contant price-earnings ratio, what will the effect bo on issuing new equity to finance the investment? To answer, calculate the new book value share, the new total earnings, the new EPS, the new stock price, and the new market-to-book ratio. What is going on here?
B. What would the new net income for the company have to be for the stock price to remain unchanged?
Fama's Llamas has a WACC of 10.80 percent. The company's cost of equity is 14.2 percent, and its cost of debt is 8.4 percent. The tax rate is 40 percent.
The standard deviation of the market portfolio is 22%. What is the representative investor’s average degree of risk aversion?
Consider a European call option on a stock, with 1 year to expiration, and a strike price of 50. Suppose that the risk-free rate is 4% APR with semiannual compounding, and that the call premium (or price) is $1.
Based on the information give what is the current market price of Hack's preferred stock and what is Endowment's tax liability on its dividend income?
Suppose you withdraw the interest every year. What will be your total earnings? Why does this differ from the interest earned in (a)?
What are the convexities of the 2 portfolios? To what extent does (a) duration and (b) convexity explain the difference between the percentage changes calculated in part c?
Kraft is a diverse company that, in 2009, made an acquisition to the confectionery group, Cadbury. However, this acquisition appears to have failed to create any value.
Compute Degree of operating leverage and combined leverage & financial leverage and interpreting these values.
The Campbell corporation is evaluating the proposed acquisition of a new milling machine. The machine's base value is $108,000, and it would cost another $12,500 to modify it for special use.
Kraska will also compute Lawrence's EAR on his investment in Google to illustrate a multiyear perspective. Lawrence purchased the Google stock for $200,000 and held it for three years before he died.
Money received today is worth more than the same amount of money received in the future. This is true because
Martha's Pancake House, Inc. just paid its annual dividend of $0.80 a share. The stock has a market price of $13.00 and a beta of 1.04. The return on U.S. Treasury bills is 2.5 percent and the market risk premium is 7.3 percent. What is Martha's c..
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